Detailed analysis of the buyback
Total no. Of shares is 230 Cr. Shares. So, the current market capitalization is 230 Cr. x current market price (923)
Infosys is buying back shares worth 13000 Cr at a price of 1150.
So, the number of shares it'll buy back is 13000 Cr./1150
Which is around 11.3 Cr. Shares
The allocation for retail Investors from this 11.3 Cr. Shares is 15%, coming around 1.7 Cr. Shares.
Let me tell who are all retail investors. Whoever is holding shares worth 2 lakhs or less.
Now, let's find out how many shares are held by them, this comes around 2.87 Cr. Shares
Infosys buys back maximum 1.7 cr. Shares from available 2.87 Cr. Shares
So, if everyone participates in the buyback, company will equally buy shares from everyone at a ratio of 1.87/2.87, which is 59.2%. This is called acceptance ratio.
So, if we have 2L worth of shares ( which comes around 200000/923= 216 shares), you can estimate how many shares that Infosys will buy back from you, as below:
1. If everyone is participating,
Acceptance ratio is your number of shares that infy will buy back, which is 216*0.592, coming around 128. This is the worst case.
2. For Infosys to buyback all shares(216) that you have, there must be offer <= 1.7 crores
Strategy to follow:
Let's take the worst case scenario. 216 shares we hold, and infy will buy back 128 shares. So, after buyback we'll still have 88 shares. To avoid the risk of these shares going down in price, we can either short futures or buy PUT option.
3 comments:
Update :
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The price has settled around 900
Redoing the Maths:
200000/900 = Max 222 shares you can max hold to be eligible as retails investor
, but please give a buffer as the stock price to go up to avoid ending up as HNI.
Safely you can buy max 200 shares
Now let's talk about the Risk:
Three Cases: ( I am considering the worst acceptance ratio of 59.6% in all cases)
1. The price remains stagnant - This situation most unlikely to happen. Since you've already bought @900, you can participate in the buyback sell 60% and hold the remaining
2. The price rises - Most likely to happen before buyback. Watch for the price rise and sell a call option ( OCT 960 CE)
3. The price goes down - never would happen till the record date due to buyback buoyancy. Still you can hedge by selling a call option ( OCT 960 CE)
The profit in the buyback process for worst case is 27.77% of 60% of 2L, which is 33324.
Now, to answer the big question of what-to-do-with-remaining-40%, the amount that you'd hedge the 40%(80 shares) is the price of 1 lot of OCT-960-CE. which is 3300. ( CMP is 6.6).
If the price rises, you'd lose this amount, which is again gained by the price rise of the 80 shares that you hold.
If the price goes down, the sell of OCT-960-CE would rise, and would protect your notional loss in 80 shares.
Hope this works out for you
How can you hedge just 88 shares by shorting. Minimum lot size for INFY F&O is 500. So retailers don't seem to have a hedging option for just 88 shares or ( any lot size close to 88).
According to latest shareholding pattern report (September 30) from NSE
Individual shareholders holding nominal share capital up to Rs. 2 lakhs = 165177824 (16.52 Crore).
Source:
https://www.nseindia.com/corporates/corporateHome.html?id=spatterns&radio_btn=company¶m=INFY
See September 30 Data, Table 3 . Section 3ai for retail investor category.
Please explain how you arrived at the 2.87 Cr figure for the retail investors. There is a huge difference between 2.87Cr and 16.5 Cr
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